The traditional entertainment industry is consolidating (see: Comcast-owned NBCUniversal; Verizon-owned AOL and Yahoo; the pending AT&T-Time Warner deal) as new entrants from Silicon Valley and beyond—Netflix, Apple, Amazon, Google and Facebook—enter the fray. Size is an important leverage point to control pricing and distribution.

Hmmm... I'm not so sure that scale should be the primary rationale for this deal. Does Netflix have the type of scale that some of these other firms have? Has that stopped them from disrupting the industry and generating strong growth and profits? To me, scale seems to be a far too simplistic explanation for this deal. Scale alone will not solve the problem of customers defecting from ESPN and depriving Disney of substantial cable fee revenue streams.

The article goes to discuss the importance of franchises. Nusca cites the acquistion of franchises such as X-Men, Avatar, Fantastic Four, Deadpool, and The Simpsons. Ok, now we are talking. Disney CEO Bob Iger has had a great deal of success acquiring characters and franchises (Pixar, Marvel, Lucas Films), and then leveraging those franchises using the broad array of businesses in the Disney portfolio.

Nusca also cites technology. He writes, "Disney’s acquisition of Fox’s interest in Hulu gives it majority interest in streaming-media player Hulu. It also allows Disney to apply streaming technology from BAMTech, an earlier acquisition, to Fox assets." We have all been reading about the struggles in Disney's television business, particularly at ESPN. They have been discussing several experiments with streaming services, and they have removed content from Netflix and will be moving it to their own streaming service in the near future. In the end, Disney has to solve this problem with regard to cord cutting and streaming. Perhaps the Fox deal will help them do that. The scale achieved through the deal isn't the solution though... success will come if they find a new way to distribute content to consumers in a world of Netflix, Amazon Prime, and rampant cord cutting, skinny bundles, etc. That's the strategic challenge that will shape Disney's future and ultimately affect the outcome of this bold acquisition.

1 comment:

Disney issues with ESPN are twofold the NFL had both a lack of quality on field at the time of political issues. Those political issues cross into other sports and I wonder if it hurt it's audience?Switching strategy from Netflix to Hulu by this deal could prove tricky. Cord cutting options are mostly competition for price not brand building, where Disney is a major brand. Netflix seemed like the first major brand is this category here and it's short lived partnership was nice. Hopefully the product offerings will become more conusumer friendly and more disruptive.

Michael Roberto

The Great Courses

About Me

I am the Trustee Professor of Management at Bryant University in Smithfield, RI. I joined the faculty after serving for six years on the faculty at Harvard Business School.

My research, teaching, and consulting focuses on leadership, with a particular emphasis on decision-making and teams. I have published two books based upon my research: Why Great Leaders Don't Take Yes For An Answer (2nd edition to be released in May 2013), and Know What You Don't Know (2009).